MABUX: Global bunker prices may continue upward evolution next week

World fuel indexes have demonstrated firm upward trend during the week. Iraq-Kurdistan rising tension, high OPEC oil cut deal compliance rates and the threat of new U.S. sanctions against Iran have fed optimism in fuel markets.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) also continued upward evolution in the period of Oct.12 – Oct.19:

380 HSFO - up from 325.57 to 334,29 USD/MT (+8.72) 180 HSFO - up from 365.00 to 372,07 USD/MT (+7.07) MGO - up from 549.50 to 558.21 USD/MT (+8.71)

As per the estimation made by the International Energy Agency (IEA), the global oil market continues to make progress, but the ongoing production gains from non-OPEC countries will probably act as a ceiling for aspirations of higher oil prices in 2018. In its monthly Oil Market Report published on Oct.12, the IEA categorized the long list of indicators that suggests the oil and fuel markets have made huge strides this year towards rebalancing. In the second and the third quarter, the global supply/demand balance was in a deficit, putting total inventories on track to drain at a rate of 0.3 million barrels per day (bpd) for the whole of 2017.

The drawdowns were especially felt in floating storage, oil in transit, and in independent storage. Currently, OECD inventories are only 170 million barrels above the five-year average, a substantial drop from the 318 million-barrel surplus seen back in January. Moreover, stocks even fell in months when they typically rise. All of this progress increased the optimism in the third quarter.

Besides, the IEA sees the recent strengthening relations between Saudi Arabia and Russia as a sign that two of the world’s largest oil producers have re-committed to do whatever it takes to support the long process of re-balancing. It was also considered as a strong indicator that the OPEC/non-OPEC coalition will at least extend their cuts beyond March 2018 when they meet in a few weeks, perhaps as long as through the end of next year. The possibility of deeper cuts remains opened as well.

OPEC in turn increased its demand forecast for its oil in 2018, and also said that the oil market could flip into deficit next year. The group said that the world would need 33.06 mil-lion bpd from OPEC, an upward revision of 230,000 bpd from its last forecast. That is the third consecutive month that OPEC has increased its demand projection for 2018 and it underscores the growing confidence in the impact of the collective cuts.

Another supportive factor is renewed worries over U.S. sanctions against Iran. U.S. President Donald Trump on Oct.13 refused to certify that Tehran was complying with the accord even though international inspectors say it is. Besides, Trump accused Iran of fueling sectarian violence in Iraq. U.S.Congress now has 60 days to decide whether to reimpose economic sanctions on Tehran. The possible impact of this action will be uncertain. Most likely, they’ll be substantially less effective than the sanctions coordinated by the international community prior to 2016: the U.S. will probably go it alone. Shortly after President Trump announced that he was decertifying the nuclear deal, the leaders of France, Germany and the UK issued a joint statement supporting the continuation of the agreement. Iran also said that it will continue to abide by the agreement. During the previous round of sanctions, roughly 1 million bpd of Iranian oil was cut off. Renewed sanctions were unlikely to curtail that level of exports, but it could still be disruptive.

Escalating fighting in Iraq threatens supplies as well. Iraqi forces unexpectedly seized control of the key oil fields around the city of Kirkuk, which had been under Kurdish control for more than three years. The move sparked concerns over civil war. There were also re-ports that Kurds had shut down some 350,000 bpd of production from major fields Bai Hassan and Avana due to security concerns. Increased fighting, including military operations against Iraq’s Kurdish region could move other regional powers to also take measures. Iran and Turkey still threaten further repressive actions against Kurdistan. Tehran warned the Kurds to back down or be confronted by a combined Iraqi-Iranian military operation. Ankara already threatened to shut pipeline to Ceyhan, which could block most of the 600,000 bpd produced in the north of Iraq.

The U.S. Energy Information Agency (IEA) reported U.S. output slumped by 11 percent from the previous week to 8.4 million bpd, its lowest level since June 2014 as numerous rigs had to be shut because of Hurricane Nate, which hit the U.S. Gulf coast earlier in October. However, the Agency has also forecast an increase of production output in the country by 81,000 barrels per day in November over October levels. The EIA is also predicting that U.S. crude oil production will hit 9.9 million barrels per day in 2018, a new high for the United States (the previous high was 9.6 million barrels per day, which was reached in 1970). Fore-casts of growing U.S. production apply some additional pressure on oil and fuel prices at the moment.

China’s import and export growth accelerated in September, suggesting the economy is still expanding at a healthy pace despite widespread forecasts of an eventual slowdown. Im-ports grew 18.7 percent in September from a year earlier. The gain was stronger than the most optimistic forecast. Exports rose 8.1 percent, below forecasts of 8.8 percent but the most in three months.

China’s politically sensitive trade surplus with the United States rose to a record for a single month (to $28.08 billion from $26.23 billion in August). That could aggravate President Donald Trump’s frequent complaints that the trade balance between the two nations hurts the U.S. economy. Trump in August authorized an inquiry into China’s alleged theft of intellectual property in the first direct trade measure by his administration against Beijing, but the move is not expected to prompt any near-term change.

Ultimately, the global fuel market looks fundamentally different than it did last year or even last quarter. The sharp drop in global inventories alone is evidence that things are heading in the right direction. We expect bunker prices will continue upward evolution next week.

Mass media registration certificate No ФС77-68135, 27 December 2016. Founder: Media Group PortNews LLC. When republishing the content of IAA PortNews, active hyperlink to the Agency is required. Commercial use of IAA PortNews content without the Agency’s written consent is prohibited.